–Greece Aid The Task Of Governments, Not Monetary Policy
–See Sustainable Gains In Current Account Deficits Of Crisis Countries

FRANKFURT (MNI) – Germany’s economy should continue to weaken in
the final months of the year as it has become increasingly tied to the
global economy’s weakness, the Bundesbank said Monday.

In its Monthly Report, the German central bank also reiterated its
criticism of the European Central Bank’s OMT bond-buying program,
warning that a conflict of interest between monetary policy and fiscal
policy must be avoided, including with Greece.

“It is clearly the responsibility of fiscal policy to decide on
further aid for Greece and to take on the financing and entailed risks.
This is not the task of monetary policy,” the Bundesbank warned.

On the positive side, the Bundesbank said trade balances had
improved in many of the peripheral EMU members and that a “large
portion” of this was sustainable and not simply due to a cyclical
downturn.

A number of structural reforms have been undertaken that should
lead to a further improvement in current account deficits, it said,
underscoring the importance that labor costs remain low for a number of
years even as a recovery in growth takes place.

“All in all, there are a number of signs that the reduction in
current account deficits in the crisis countries of the euro area are
not mostly of a cyclical nature, but instead to a large degree based on
sustainable changes,” the report said.

The Bundesbank said economic growth weakened in Germany over the
summer months and was increasingly vulnerable to the Eurozone and global
economic outlook.

“The economic outlook is currently based on a intermingled overall
picture that by all expectations will continue to weaken through the end
of the year,” it said. “The uncertainties stemming from the debt crisis
of the euro area are in this context of as much importance as the mixed
economic signals from other parts of the world.”

The Bundesbank said private households were continuing to benefit
from a robust labor market and wage increases, but here too the broader
economic weakness was starting to become noticeable. Improvements in the
labor market have come to a standstill.

Recent business surveys confirmed a “deep-seated uncertainty” among
German firms about developments for the coming year. The bank noted that
while efforts at European level to quell the crisis – notably the OMT
bond-buying announcement – had eased concerns in financial markets, this
had yet to have a positive impact on the confidence of non-financial
firms.

The Bundesbank said money supply growth in Germany remains stable
and said it sees no medium-term risks to price stability.

“Inflation forecasts based on different monetary indicators … at
the moment signal no particular risks for price stability for the next
three years,” it said, but noted that “the uncertainty linked to these
forecasts remains high.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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